Can Honda Travel a Path of Rising Prices?

With shares of Honda Motor (NYSE:HMC)trading around $38, is HMC an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Honda Motor develops, produces, and manufactures a variety of motor products ranging from small general-purpose engines and scooters to specialty sports cars. The company’s business segments are the motorcycle business, automobile business, financial services business, and power product and other businesses. Honda conducts its operations in Japan and worldwide, including North America, Europe, and Asia.

Honda Motor may be floating $2.75 billion worth of U.S. dollar-denominated bonds in three parts as soon as Friday, sources told The Detroit News. Honda’s finance division could release $1.75 billion of three-year debt, made up of $1 billion of fixed-rate notes yielding 65 basis points more than similar-maturity Treasuries, as well as $750 million of floating-rate securities paying 50 basis points more than the three-month London interbank offered rate, the sources said.

T = Technicals on the Stock Chart are Mixed

Honda Motor stock has not made significant progress in recent months. The stock is currently trading near mid-prices for the year and looks like it may need time to establish value. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Honda Motor is trading between its tangled key averages, which signal neutral price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Honda Motor options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Honda Motor Options

33.16%

90%

88%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Steep

Average

November Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.